2014 Brings Changes in Retirement Benefits

Social Security Payouts, Medicare Copays Will Rise Modestly

The new year will usher in some simple but significant changes to Social Security and Medicare benefits for the more than 57 million Americans who receive them.

The widely watched cost-of-living adjustment will be modest, thanks to a low inflation rate. Expect a 1.5% rise in monthly Social Security checks, which will lift the average check by only $19 to $1,294. That's a tad below the 1.7% bump retirees received in 2013 but far better than no increase, which is what happened in 2010 and 2011. Some of the other changes:

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Higher tax caps: You will have to make more money in 2014 than you did in 2013 to reach the maximum amount subject to Social Security taxes. That cap will rise about 3%, to $117,000 from $113,700. The Social Security Administration estimates that of the roughly 165 million workers who pay into the system in 2014, some 10 million, or 6%, will pay higher taxes because of the increase.

Retirement-earnings limits rise: The earnings limits for retired workers receiving benefits who are younger than their full retirement age, and those who are approaching FRA, are edging higher. Those below FRA will have $1 deducted from benefits for every $2 earned over $15,480. The newborns of 1948, who reach FRA in 2014, will see $1 subtracted from benefits for each $3 earned over $41,400 until their birthday month. After you reach FRA, you may make as much as you like without any reduction in benefits.

Medicare Part A deductible inches higher: For inpatient hospitalization, if you don't get premium-free Part A, expect to pay $32 more before you reach the new $1,216 deductible. Beneficiaries also will be expected to fork over $304 a day in copays for days 61 to 90 (up $8), and $608 a day for stays beyond 90 days (up $16).

ENLARGE

James O'Brien

Q:I will be 66 on Feb. 4 and my wife, Carol, will be 66 on July 3, both at full retirement age. I will retire on Feb. 28, 2015, and my wife will retire on July 31, 2015. My Social Security monthly benefit will be $2,300 and hers will be $1,500. It seems either of us can file for benefits against the other's record, but I am trying to determine which one is more beneficial without any negative impacts later.

— Steve B. Menomonee Falls, Wis.

A:That's right, either one of you can collect half of the other's full benefit. Given the disparity in your benefits, however, and your different retirement dates you should file now, having reached FRA, but suspend receiving benefits until you are ready. While they're suspended, your benefits will grow 8% a year—a healthy return on any investment.

Your filing at FRA allows Carol to file for 50% of your benefits—the "spousal benefit." She should wait until July, when she reaches her FRA, or the benefit will be reduced. At that time, she tells the Social Security Administration that she is not tapping into her own benefits just yet.

It's smarter for you to file and suspend rather than Carol because, as you note, her half of your benefit is $1,150, or $400 more than if she filed and you collected 50% of her benefit. Because only one member of a couple can apply and suspend, it makes far better financial sense for you to be the one. Over the course of a year, that will bring in $4,800 more to the two of you, while you both continue to work, for a total of $13,800. And when Carol reaches FRA, her earnings won't impact your benefit.

When you "unsuspend" your benefits, Carol's take remains the same—half of $2,300, your original benefit—but your payout will have grown to $2,484.

At that point, the two of you are collecting $3,634 a month. But you're in better stead because Carol, bless her, is still working, bringing home a paycheck and, presumably, adding to her 401(k) and other savings while her benefits are accumulating at that 8% rate.

When she stops working at the end of July in 2015, she can switch over to her benefit, which will then stand at $1,620. If you should die before her, she can then make a change to her survivor's benefit, or your full monthly benefit because it is higher than hers.

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